Rajeev Misra leaned back in his desk chair, exhaled a pull from a Juul vape, and delivered his verdict on the relationship between the firm of which he is chief executive officer, the SoftBank Vision Fund, and the Kingdom of Saudi Arabia. “Our interests align. We stand by them shoulder to shoulder,” he said.

That coincidence of interests is set to bring big economic benefits for Saudi Arabia as it seeks to transform its economy away from oil dependency.
“Our commitment is to support the creation of tens of thousands of jobs in Saudi Arabia, hi-tech jobs not blue collar, over the next few years,” Misra added.

His categoric assertion of the common vision between the world’s biggest ever investment fund and the Kingdom could not have been clearer and came at a crucial time in the fund’s development.

Pretty soon, the fund will have invested most of the $96 billion (SR360 billion) it raised two years ago and will look to launch a new fund to invest in cutting-edge disruptive technologies across the globe.

To do that, Misra will be looking once more to Saudi Arabia’s Public Investment Fund (PIF), and to the UAE’s Mubadala. Along with the Japanese SoftBank run by the Vision Fund’s chairman, Masayoshi Son, those three organizations put in the vast bulk of financial resources to the first fund.

If Son and Misra are to deliver on their mission to transform the global investment scene, they will need more Saudi and Emirati support. Whether or not it comes in the same huge quantities as in the first fund — $45 billion from the PIF and $15 billion from Mubadala — is still under negotiation as preparations for the second fund are being finalized. 

But there is no doubt from the Vision Fund side that the relationship with the Middle East is regarded as crucial to their ambitions.

In the course of a rapid-fire interview at Vision Fund’s headquarters in Mayfair, still the swanky capital of the private equity industry in London despite Brexit chaos outside, Misra explained the relationship with the Middle East, the progress made in the first two years or so of the fund’s operations, and answered critics of his track record in governance and valuation in the technology sector. Boring it was not.

He revealed a pledge to Crown Prince Mohammed bin Salman to support and enhance the Vision 2030 strategy to diversify the Saudi economy away from oil dependency. Delivering on that promise will depend on the application of Vision Fund’s “unique” business model which seeks to create an eco-system of investment and growth in new businesses.
“Vision Fund is a unique entity. It’s not a fund with a large number of investors — 90 percent of the capital came from three investors. It now has 81 investments around the world, in mid- to late-stage companies that are disrupting every industry on the planet in the way they conduct business using data sciences, technology and artificial intelligence (AI),” he said.

“We believe the wealth creation, the impact on the global economy over the next five to 10 years due to AI and data science will be even more profound than the impact over the last 20 years that the Internet has had,” Misra added.

Although Vision Fund has the reputation of being a specialist tech investor, it actually invests in any sector that it thinks can be disrupted and transformed by digital technology, from car parking, through to office-space management and health care, as well as others.

“AI and data science will impact every industry — how cars are sold, hotels, how insurance is sold, how homes are sold, health care, banking and trade finance,” said Misra.

The initial financial injection, usually between 20 and 50 percent, is only the beginning of Vision Fund’s involvement with its portfolio. “Our job is not just to invest. It’s to support our portfolio companies and help them grow.”

Vision Fund supplies this support to its portfolio companies in a number of ways. It provides them with the services of the in-house “operating group,” a cadre of trained and experienced executives separate from the investment process whose job is to assist with growth, recruitment and geographical expansion.

Misra soon expects to have more than 100 of these operatives as the number of investments grow. He also sees great benefit to be obtained from developing and enhancing synergies across the portfolio, with invested companies with common needs tapping into each other’s resources.

BIO

BORN • 1962, India

EDUCATION • Delhi Public School, the University of Pennsylvania, from where he gained a bachelor’s degree in mechanical engineering and then a master’s degree in computer applications

• Sloan School of Management at the Massachusetts Institute of Technology, USA, from where he received an MBA

CAREER • Senior financial executive at Merrill Lynch, Deutsche Bank, and UBS

• CEO at SoftBank Investment Advisers

“We help our portfolio of over 80 companies work with each other. That is a very powerful tool. The ecosystem of the fund has become an amazing growth generator for our portfolio companies and for the fund,” he said, reeling off a list of companies that have already or are in the process of exploring collaboration opportunities.

In financial terms, the fund is “doing very well,” Misra said. Valuations of assets are 20 percent ahead, and there have been five initial public offerings already — including the big IPO (initial public offering or stock market launch) of Uber earlier this year — which he said was “not bad for a young fund,” and promised more.

“We have dozens of companies planning to IPO by the beginning of 2021, assuming market conditions are favorable,” he said, citing “regulatory reasons” for his inability to publicly identify the “three or four more” IPOs that are under consideration for later this year.

Talk of regulators brought the conversation round to governance. Vision Fund has endured some criticism for perceived shortcomings in its governance procedures — it is said that SoftBank, under the command of the mesmerizing Son, has too much say in the choice of company investment; it is also suggested that too much control at the fund rests with a small coterie of investment executives, mostly with a common background to Misra’s as former Deutsche Bank financiers and traders.

It was the first time Misra’s casual bonhomie dropped, and he seemed just a little annoyed. “We’ve hired from a broad range of backgrounds including investment banks, asset managers and technology companies, many of whom we’ve worked with before. Investing is a trust business. If you let somebody invest your capital you’ve got to trust them; their judgment, their integrity, their track record. In any financial business you hire people you know and trust,” he said.

Referring to former Deutsche executives at the fund, he added: “They are the best of the best and I’ve worked for decades with many of our senior members.”

In other governance areas, Misra is at pains to point out that, although the fund has invested tens of billions in its first two years, it has not been simply throwing money at any prospect that comes along. “We’ve looked at 2,000 investment opportunities in the fund and have made 80 investments, so it’s a very rigorous investment process.”

The ultimate investment decisions were taken by himself and Son, he said, and the two had to agree for the investment to proceed. But there are formal investment and valuation committees too that have a big say in decisions, as well as an advisory board, on which the PIF and Mubadala have majority representation, designed to avoid conflict between the fund and SoftBank.

The fund is also regulated by the US Securities Exchange Commission and the UK’s Financial Conduct Authority, as well as regulators where it does business around the world.

The second fund, now being prepared, will not change its governance philosophy. As for the criticism that the Vision Fund’s huge financial resources have overinflated

value in the venture capital business, especially in the technology sector, his view is that there is nothing wrong with wealth creation.

If all goes to plan, Saudi Arabia stands to be a major beneficiary from that value creation. Not only will the PIF and other investors see healthy returns — what fund executives call “proof of concept” which could amount to a $15 billion payback by the end of this year — but also job creation, knowledge transfer and economic stimulus in the Kingdom.

Misra highlighted the portfolio companies that had already set up in the Kingdom — such as Indian hotels group Oyo and Californian construction group Katerra — and pledged these are just the beginning of a wave of foreign investment in Saudi Arabia.

“Our portfolio companies will have a big presence in Neom (the hi-tech metropolis being developed on the northern shores of the Red Sea), and over the next six months we hope to have a dozen companies with presence in the Kingdom,” Misra said.

The target is for 50 fund portfolio companies to be in Saudi Arabia by 2030, making Riyadh (where there are already half-a-dozen fund companies) the regional hub for digital technology. He had used the word “family” several times to describe the relationship with Saudi Arabia, and Misra obviously believes that family comes first.

Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai